European Derivatives 2010: The Buy-Side Perspective on Equity Options, Futures and Swaps Executive Summary Equity derivatives are coming in from the cold and the buy side is bullish about their potential.  Fund managers are taking more active control over the volatility of their portfolios.  Fresh assets and new fund strategies are driving an increase in usage of equity derivatives as investors demand better performance. For some, derivatives are a tool to help with efficient housekeeping within a portfolio, but for most they are a necessary port of call to demonstrate performance, keep transaction

Asset managers and hedge funds use derivatives for many of the same reasons.  Usage varies amongst the buy side, as some use derivatives only when they need to and others when they can. Looking forwards, swaps figure on the radar as asset managers are setting up UCITS III funds that can deliver punchier returns, while hedge funds are seeking to broaden their investor base and find new audiences for their investment techniques.

Although the financial crisis has left its scars across the derivatives landscape, relationships with brokers are well if not thriving.  Yet buy-side traders have a long list of improvements they would like from their brokers, which would improve their ability to trade efficiently and find affordable liquidity. 

Counterparty risk concerns have driven buy-side activity towards listed products, yet liquidity outside the top products remains a source of frustration. Meanwhile, the need for OTC products, custom baskets and oversized trades will temper the ability to trade on the exchange, but brings no lesser demand for transparency, faster trading and enhanced clearing solutions.

As the funds stretch their derivatives wings in search of alpha and exchanges look for new ways to be competitive, the equity derivatives arena is ripe for progress.  Trading tools need to keep up as the buy side seeks to improve their electronic quote and trade capture capabilities and speed up straight-through processing, as this is a marketplace where they want to trade more if they can.

The TABB Group Report on European Derivatives 2010:
The Buy-Side Perspective on Equity Options, Futures and Swaps
This report is based on conversations with 51 buy-side head traders from asset management firms and hedge funds located in 10 of the most developed markets in Europe. This first European Derivatives benchmark study looks at why, what and how the buy side is trading equity derivatives in Europe and explores competition, product choices, broker relationships, and expectations for the marketplace.